JPMorgan Chase has sued the former manager of Bruno Iskil, the “London Whale” who executed the “Fail Whale trades” that cost the company as much as $7 billion. Javier Martin-Artajo was the direct supervisor to Iskil in the Chief Investment Office in London.

The lawsuit, which was filed in a London court, did not disclose the details of JPMorgan’s claims against Mr. Martin-Artajo, according to a person with knowledge of the complaint. Mr. Martin-Artajo and Mr. Iksil have left the bank. A spokeswoman for JPMorgan declined to comment on the lawsuit. Mr. Martin-Artajo’s lawyer could not be reached immediately for comment [...]

The investigation, led by Michael J. Cavanagh, the bank’s former chief financial officer, uncovered that some traders within the unit might have improperly valued their positions as losses began to mount. Some phone recordings suggest that Mr. Martin-Artajo encouraged Mr. Iksil to value troubled positions in a favorable manner, according to people with knowledge of the situation.

Mr. Martin-Artajo, Mr. Iksil and two other employees who worked in the chief investment office are under investigation by criminal and civil authorities. Authorities are examining whether the group mismarked the positions to cover up losses, according to the people. After revising the valuations on those trades, JPMorgan had to restate its first-quarter earnings.

This is yet another example of JPMorgan Chase trying to foist their legal exposure onto individual traders and executives rather than their own corporate headquarters. I wrote about this three weeks ago. Regardless of what individual in the CIO did with mismarking positions, the responsibility ultimately lies with Jamie Dimon, under the Sarbanes-Oxley Act. Management is responsible, under Sarbanes-Oxley, for the internal controls that alert them to fraud anywhere in their unit. A “rogue trader” is not a valid excuse under the law.

JPMorgan delivered taped conversations to federal authorities, trying to pin the mismarking of valuations on them. This lawsuit goes right along with that. But the blame cannot be confined to them. Top management is responsible for delivering inaccurate financial statements to regulators and investors, period, end of sentence. This lawsuit represents a convenient bit of misdirection.JP

As a CEO with a NYSE-listed corporation, I had to sign off for everything financial, and Sarbanes-Oxley Act doesn’t care if your employees are doing a terrible job, but the law expects you to be doing your job.

Jamie should spend more time managing his company and less time with hucksters (Gang of 80) out to cut Medicare and Social Security. And less time playing golf with famous politicians might also help.

When I was a consultant for Pepsi Cola many years ago, Sarbanes Oxley caused quite a stir. Pepsi had been slow to pay my employer $40,000. Concerned that the appearance of some mysterious $40,000 outstanding bill on their annual reports caused the Pepsi president to pay us off. To Pepsi’s credit, they did the right thing.

Until Wall Street executives go to jail for Sarbanes Oxley, I do not see anything changing.